457 vs Roth IRA

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Topic Author
freeze
Posts: 18
Joined: Tue Jul 19, 2011 10:04 am

457 vs Roth IRA

Post by freeze » Mon Feb 11, 2019 3:25 pm

Hi all,

Just went through a bunch of threads looking at investment options with 457's vs roth accounts and am still confused...

I am 39 and my wife is 40, both are city and county employees in the state of WI. We both put the required 6.5% of gross earnings towards our WI state pension and our employer matches that. After that is where I have some questions.

Currently we gross about 130K and this is our current breakdown:

457 (me): $121K in traditional 457 and $42K in roth 457
457 (her): $47K in traditional 457 and $5k in roth 457

Vanguard roth IRA's: $59K

All of our current contributions go either to our roth 457s or Vanguard roth IRA's. Are we missing any tax advantages by putting everything in roth accounts? We currently put $6500/year in each of our roth 457's and $3000/year in each of our Vanguard roth IRA's.

Should we max Vanguard roth IRA's and put some in our traditional 457's to lower our earned income? We have Vanguard target funds in our 457 plans, so investment options do not matter whether we go with our 457 or Vanguard roth IRA's (both give us access to good Vanguard target funds).

Thanks for any input...

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: 457 vs Roth IRA

Post by ExitStageLeft » Mon Feb 11, 2019 4:03 pm

Your tax bracket puts you in the gray area where there's no obvious best choice. Maintain some tax diversity and go with what you're confortable with.

Under the current tax law it makes some sense to favor Roth, so I'd suggest stay on your current path but reassess as your get a better sense of what your future income sources will be. If you work typical county careers, what do you foresee for pensions and social security?

Topic Author
freeze
Posts: 18
Joined: Tue Jul 19, 2011 10:04 am

Re: 457 vs Roth IRA

Post by freeze » Mon Feb 11, 2019 4:10 pm

ExitStageLeft wrote:
Mon Feb 11, 2019 4:03 pm
Your tax bracket puts you in the gray area where there's no obvious best choice. Maintain some tax diversity and go with what you're confortable with.

Under the current tax law it makes some sense to favor Roth, so I'd suggest stay on your current path but reassess as your get a better sense of what your future income sources will be. If you work typical county careers, what do you foresee for pensions and social security?
That was my thinking as well, no real obvious choice. We still have more in traditional right now, so that's why I went with roth from here on out.

We will both receive a WI state pension, eligible at age 55. We would both have well over 30 years in, so if we retire at 57 we get max pension benefits. If we retire at 55, I think we get something like 90% of full benefits. We will both get social security...

retiredjg
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Re: 457 vs Roth IRA

Post by retiredjg » Mon Feb 11, 2019 4:12 pm

I don't think people will agree on the answer. I vote for mostly Roth.

It appears you will have two pensions. That will be taxable income in retirement. You may (or may not) be eligible for SS but if you are, that will also be taxable income. It is possible you will not need any more taxable income in retirement. But there is no way to know for sure.

For that reason I'd put something into a tax deferred account, but most of it into Roth.

Currently you are in the 22% tax bracket. It is possible with two pensions you will never be in a a lower bracket. Can you guess now? Will your two pensions together, in today's dollars, amount to most of what you actually spend now (not make now, but spend now)?

aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: 457 vs Roth IRA

Post by aristotelian » Mon Feb 11, 2019 4:20 pm

Really depends on your situation. The big question is tax bracket now versus in retirement. That can be affected by a lot of things, such as how long you work, when you claim SS, etc. For most people, tax in retirement is lower, but having a pension could negate that. You are welcome to try this spreadsheet to estimate the difference in your case.

https://docs.google.com/spreadsheets/d/ ... 1374797127

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Peter Foley
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Re: 457 vs Roth IRA

Post by Peter Foley » Mon Feb 11, 2019 4:21 pm

I would vote for mostly 457b. You will likely retire early and will be able to create a number of low tax years when you will be able to draw down a tax deferred account at a lower tax rate than you have right now.

Do track the ratio of traditional 457b to Roth 457b. You do not want too much in tax deferred. That is why I said mostly.

ExitStageLeft
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Re: 457 vs Roth IRA

Post by ExitStageLeft » Mon Feb 11, 2019 4:27 pm

freeze wrote:
Mon Feb 11, 2019 4:10 pm
We will both receive a WI state pension, eligible at age 55. We would both have well over 30 years in, so if we retire at 57 we get max pension benefits. If we retire at 55, I think we get something like 90% of full benefits. We will both get social security...
Back of the envelope estimate, what percentage of your current income would pensions be at 57 and SS be at 67?

retire2022
Posts: 259
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Location: NYC

Re: 457 vs Roth IRA

Post by retire2022 » Mon Feb 11, 2019 6:46 pm

freeze post

I would do Roth457 over traditional 457, you may have kids and if you calculate the projected traditional 457 19K x 37 or 38 years you will be taxed at the profit of the balance. Your pension may push you over to higher tax bracket. The tax bracket may not stay low and maybe increased after 2025.

Traditional 457 has RMD at 70.5 with your pension you maybe at a higher tax bracket at 70.1/2

calculate your projected assets at 4% compound interest rate in 37 or 38 years use the compound interest calculator

http://www.moneychimp.com/calculator/co ... ulator.htm

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